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Seminar on “Corporate Governance & its relevance for the Stock Markets”

Date:22nd January 2011
Speaker:Mr. Ramachandra Pore
               Practicing Company Secretary

Venue: MCCIA, Pune

An evening seminar was organized on the topic “Corporate Governance & its relevance for the Stock Markets”.   Mr. Ramachandra Pore was the speaker and he talked about corporate scams which are hitting the stock market with alarming regularity.  This has resulted into retail investor loosing his faith in the markets.  Failure of the Government to enforce discipline among Corporates is becoming apparent.  On the other hand, Corporates are gaining more and more economic power.  As a result, the search of alternative methods of Corporate Governance is attracting more and more serious attention.

As per Mr. Pore, Corporate Governance means establishment of such practices and procedures that will establish fairness, accountability, integrity, responsibility and transparency in management of corporates. The focus is on protecting and enhancing the interests of all stakeholders and achieving long term strategic goals. Corporate Governance is self-regulation by corporates beyond law.

Does Corporate Governance have any relevance to equity prices?.......It has.  Studies in India and abroad have shown that investors, especially large investors, are ready to pay a premium for well-governed companies.  Sustained long-term growth can be obtained through excellence in Corporate Governance only.  Gains made by un-ethical methods do not last long. Well-governed companies enjoy favorable treatment from all stakeholders; banks, suppliers, customers, employees etc.  This should normally translate into better earnings. Obviously such companies will enjoy higher valuation on stock exchanges.

Even for corporates it is better to have fair valuations on stock exchange.  It helps them in raising further capital at lesser cost.  If share prices drop too much, the Company may become a target for take-over.

But for a retail investor it is very difficult to form an opinion about the wellness of the governance of a company.  Corporate can create a façade of governance through well orchestrated publicity.  Corporate Governance ratings are rare and not well-publicized. Only favorable matters are given exposure. Further, the practices and procedures recommended by the Governments have yet to prove their effectiveness. Laws can be complied more in letter than in spirit.  Indian corporate sector is dominated by family owned companies. In such case, the implementation of corporate governance depends on the inclination of the Top management.

Markets will have to learn to reward the well-governed companies.  Signs to this effect are there.  This, in long term will encourage others to improve themselves.  The process is in evolving stage and will gain more and more importance over time.  This may be a beginning towards a new capitalism.